Stocks battered by bevy of warnings

Violence in the Middle East adds to market's anxiety

JulieRannazzisi

NEW YORK (CBS.MW) -- Stocks fell apart Wednesday, buckling under the weight of painful warnings from Advanced Micro Devices, Apple Computer and Ciena as well as escalating violence in the Middle East.

The Dow ended down 1.5 percent while the Nasdaq declined 3 percent to its lowest close in 8 1/2 months.

Reports of an explosion in a Jerusalem neighborhood rocked stocks around midday. And in the afternoon, Israeli helicopters reportedly began firing on targets in the Gaza Strip. Read the story.

In the meantime, negative outlooks from tech companies continued to push back recovery expectations.

Market participants had hoped that a bounce in information technology spending would occur in the second half of 2002. But companies continue to lament shabby demand among their customers, suggesting that a real rebound may not take place till 2003.

"The market's action is very demoralizing. Investors remain skeptical about the prospects of an earnings recovery and the negatives are being accentuated," maintained Donald Selkin, director of equity research at Joseph Stevens.

"We either need to see an improvement in the profit picture or an easing of international tensions," Selkin continued.

Losses in shares of Intel, AT&T, SBC Communications, Walt Disney and Hewlett-Packard hamstrung the index, with only Home Depot, Procter & Gamble, McDonald's and United Technologies ending higher.

"There's no follow through to rallies [and] no volume to back them," remarked Jay Suskind, director of trading at Ryan Beck.

"It all boils down to investor confidence in corporate America. There are reasons for people to be nervous," Suskind added. He said it'll take time and patience to repair the crisis of confidence that has enveloped Wall Street.

Fittingly, chip and hardware stocks took the biggest blows among the tech groups. Even Oracle, which posted better-than-expected results, dripped in red ink. In the broad market, all sectors except for paper and defense were awash in red. Check market stats and latest sector performance.

Volume totaled 1.27 billion on the NYSE and 1.70 billion on the Nasdaq Stock Market. Market breadth was dismal, with decliners stomping on advancers by 20 to 12 on the NYSE and by 24 to 11 on the Nasdaq.

Chips, hardware clocked

AMD
AMD, +2.18%
warned investors late Tuesday that its second-quarter results would be worse-than-expected because of ongoing weakness in the PC market. See the story.

Rival Intel had trimmed its second-quarter revenue target in early June. Further, Intel
INTC, -0.73%
announced late Tuesday that it would take a $100 million charge during the second quarter as it exits its Web hosting operations. Read the story.

AMD slid 15.5 percent and Intel 8.8 percent. UBS Warburg slashed its view on AMD to a "hold" from a "buy." And Salomon lowered its rating on the stock to a "neutral" from an "outperform." Analyst Jon Joseph said he believes AMD has company specific issues, namely: a loss of market share to Intel, especially in the Asia-Pacific region, a lack of speed upgrades and pricing pressure.

Adding to the shoddy tone, Rambus
RMBS, +0.60%
tumbled 35.9 percent after the Federal Trade Commission accused the memory chip designer of anticompetitive practices. Rambus responded, saying it was surprised by the FTC's stance. See full story. The U.S. Department of Justice confirmed Wednesday that it is investigating the computer memory chip industry. Micron
MU, +3.08%
for one, received a grand jury subpoena seeking information regarding the Dept. of Justice industry-wide probe. Shares dropped 14.9 percent. Check story.

But amid the doom and gloom, the chip equipment sector also got a dose of uplifting news.

Semiconductor Equipment and Materials International (SEMI) reported that North American-based manufacturers of semiconductor equipment registered a book-to-bill ratio of 1.26, meaning that $126 worth of new orders were received for every $100 of product billed. SEMI pointed out that for the second straight month bookings showed positive year-over-year growth and surpassed the $1 billion mark for the first time since March 2001. The group expects a more robust market for equipment companies in late 2002 or early 2003. See Hardware Stocks story.

But the upbeat news may not yet translate into stock gains, analysts said.

"Despite the seasonal weakness in PCs at this stage, chip companies continue to order leading edge equipment, both front-end and back-end. However, uncertainty regarding a seasonal pickup in the third quarter will likely cause stocks to remain choppy in the near term," commented Salomon in a note to clients.

Oracle turns lower; Jabil rise above the fray

Oracle
ORCL, -0.55%
gave up early gains and shaved 1.6 percent in recent action. The software company's fiscal fourth-quarter results exceeded Wall Street's expectations late Tuesday. Oracle also said it remains on track to meet targets in its fiscal-first quarter and contended that market share for its flagship database product has "never been stronger." See full story. Among other software stocks, BEA Systems rose 0.5 percent while PeopleSoft shed 1.1 percent and Microsoft descended 2.2 percent.

Electronics manufacturing services firm Jabil Circuit
JBL, -0.43%
also had some good news to share, posting a fiscal third-quarter profit from operations that topped the Wall Street estimate after the close Tuesday. The company also backed fourth quarter profit expectations. The stock shot up 5.6 percent. But trading was decidedly mixed among its peers: Solectron rose 0.7 percent while Sanmina eased back 2.5 percent and Flextronics 3.9 percent. See story.

Brokerages decline

Shares of brokerages took an across-the-board hit, with Bear Stearns
BSC, +0.00%
off 0.4 percent even after reporting better-than-expected second-quarter results. And Morgan Stanley
MWD, +0.00%
slumped 2.3 percent after checking in with second-quarter earnings from operations that matched the Wall Street consensus estimate. See the full story.

Martha Stewart Living
MSO, +0.00%
rallied 14.2 percent after backing its target for the second quarter following days of declines fueled by an insider-trading scandal threatening to engulf company founder Martha Stewart. Check the story.

Walt Disney
DIS, -0.93%
slid 5 percent and was among the Dow's leading decliners after Deutsche Bank slashed estimates on the company.

TRW
TRW, +0.93%
put on 0.5 percent after reaching an agreement to sell its aeronautical systems business to Goodrich Corp.
GR, +7.14%
for $1.5 billion in cash. TRW said it would use the proceeds to pay down debt. Goodrich shed 1.1 percent. See full story.

In the energy patch, Dynegy
DYN, -10.28%
dropped 11.4 percent after announcing that its chief financial officer had resigned.

Goodyear Tire & Rubber
GT, +0.00%
eased back 0.8 percent even after upping its second-quarter earnings target thanks to successful cost-reduction efforts and improved results from its international operations.

No economic data was set for release on Wednesday. Thursday's lineup includes weekly initials claims, May leading economic indicators and the April trade numbers. Check economic calendar and forecasts.

In the foreign exchange sector, the U.S. dollar weakened against the other major currencies, with the euro rising to levels not seen since January 2001.

Checking the rates, the greenback dropped 0.3 percent to 123.84 yen while the euro gained 0.5 percent to 95.74 cents.

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